Employers May Be Legally Liable for Unpaid Severance Under Maryland’s Wage Payment and Collection Law

Posted by Edward Sharkey on Wed, 09/12/2012 - 18:22

Pursuant to the Maryland Wage Payment and Collection Law (the “Law”), employees have a right to sue for unpaid wages. If a court finds that an employer has withheld wages in violation of the Law, the employee may recover three times the unpaid wages and attorneys’ fees. A recent opinion by the U.S. District Court for the District of Maryland makes it clear that, in some circumstances, severance pay is a wage that is covered by the Law.

In the case, the employer agreed to pay the employee a severance if the employee (1) remained employed as long as required by the employer, (2) was not terminated for cause, and (3) performed all assigned tasks. When the employment relationship ended, the employer refused to pay the severance. The employee sued, claiming that this violated the Law. The employer asked the court to dismiss the employee’s claim on the ground that severance pay is not a wage covered by the Law. The court rejected the employer’s claim.

To be a wage under the Law, a payment (1) “must have been promised as part of the compensation for the employment arrangement” and (2) all conditions for earning the compensation must have been fulfilled during the employment. In this case, there was evidence that the employer (1) promised the severance as part of the compensation for the employment and (2) the employee had fulfilled the conditions of the severance agreement. For this reason, the Court held that the severance pay at issue was a wage covered by the Law.

The court distinguished the severance payment at issue in the case from severance payments which are conditioned on the employee’s performance of some obligation, such as not competing with the employer, after the employment has ended. Payments that are to be made in exchange for employee conduct after the termination of employment do not satisfy the requirement that all conditions for earning the compensation have been fulfilled.

The lesson for employers: when agreeing to pay severance to an employee, make it clear that the employee’s entitlement to severance is conditioned, at least in part, on the employee's conduct after the employment relationship has terminated.

Call Today (301) 657-8184

 Google+  View Edward Sharkey's profile on LinkedIn